Interview: Thailand’s Central Bank Chief on Its Rate Cut, Household Debt and Fintech

The interview with Sethaput Suthiwartnarueput, Governor of the Bank of Thailand (BOT), highlights several critical aspects of Thailand's economy and monetary policy. As Thailand seeks to expedite its recovery from the pandemic, key drivers like tourism are significant, yet challenges like household debt, accounting for about 90% of GDP, persist, making interest rate policy essential [para. 1][para. 2]. In October, BOT unexpectedly reduced its policy rate, prompting discussions about its monetary policy, especially given global uncertainties [para. 3].

Sethaput, an experienced central banker with a Ph.D. in economics from Yale and a background including roles at international organizations like the World Bank, articulates the rationale behind the rate cut. The central bank considers the growth, inflation, and financial stability outlooks when setting rates. While growth and inflation align well with expectations, financial stability remains a key concern, particularly due to high household debt. Lowering interest rates can ease existing debt burdens but may incentivize new borrowing, highlighting the balancing act required by the BOT [para. 4][para. 5].

To address household debt, Sethaput emphasizes the need for an appropriate monetary policy stance that considers economic growth, inflation, and debt deleveraging processes. Besides interest rate adjustments, macroprudential measures and targeted initiatives like Responsible Lending guidelines help inform borrowing decisions and advocate for debt restructuring where necessary [para. 6][para. 7].

While the Thai government has advocated for lower interest rates to boost growth, the BOT maintains an inflation-targeting framework to guide decisions, emphasizing forward-looking approaches rather than reactive to data [para. 8]. Exchange rate management amid global market volatility also remains a priority for the BOT, which employs a managed floating regime to avoid excessive volatility not supported by fundamentals [para. 9][para. 10].

In terms of political influence on the financial system, Sethaput notes that economic challenges like Covid-19 have had a larger impact than political volatility. Stability and resiliency, supported by adequate buffers such as foreign exchange reserves and a solid banking sector, are crucial to safeguarding the economy against uncertainties [para. 11][para. 12].

Regarding digital transformation, the BOT is involved in various projects, including the cross-border CBDC project mBridge. While the value of a retail CBDC remains unclear due to the success of the existing PromptPay system, wholesale CBDCs have clearer use cases for interbank settlements and cross-border transactions, offering potential for infrastructure enhancements [para. 13][para. 14]. Initiatives for digital payments focus on expanding systems like PromptPay and establishing bilateral and multilateral linkages to facilitate cross-border transactions, essential for a tourism-dependent economy like Thailand [para. 15][para. 16]. The BOT's vision also includes promoting open infrastructure, competition, and data within the digital financial landscape [para. 17].

Finally, addressing climate change impacts is vital for Thailand's economy, with BOT encouraging banks to incorporate climate risks into decision-making. The Financing the Transition initiative works with banks to develop programs that facilitate an orderly transition from brown to greener industries, directly impacting sectors like hospitality, with significant eco-friendly demand from tourists [para. 18][para. 19].

Overall, BOT's strategies encompass careful balancing of monetary policies, digital innovations, and responsive actions to climate change, setting pathways towards stabilized economic recovery and sustainable growth in Thailand [para. 20].